Porter Five Forces
Porter’s Approach is taken from his 1980 book “Competitive Strategy: Techniques for Analyzing Industries and Competitors. Porter’s theory has often been used by many people to understand more about a company’s structure and the method or plan used to run its business. In his book, Porter identified 5 external forces that will affect an industry or a market. The type of forces can help us to understand or to analyze how a company makes its profits, or how it could attract others to do business with. Porter also helps to identify the specific company’s competitor.
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We may use Porter’s competitive forces to analyze how it can have an impact to the operations of Cold Storage. Threat of New Entrants For the past 30 years, the food industry has seen the up and rising supermarket industries, which has become dominant in recent years. These large supermarkets focus heavily on operational efficiency, especially relying on the importance of one stop shopping for customers, and Cold Storage also operates in such manner. Such method of operation affects a lot of small traditional shops such as butchers and bakers.
This makes it very difficult and creates a barrier for other new supermarkets to enter this industry. Due to a large fixed cost and huge capital involved, new entrants’ supermarkets find it hard to break into the market. Bargaining Power of Suppliers The power of the suppliers can be highlighted as they often do business with large food chains, and also there is a fear of losing these suppliers and their business to other larger retail supermarket. In Singapore, Giant and Carrefour, as a direct competitor to Cold Storage, often gets better promotional prices from suppliers, in hich we can see that the smaller retailers cannot compare.
In the terms of the suppliers, the huge growing prospects of these large supermarkets make it difficult for them to source products from overseas. With this in mind, the suppliers are restricted to operate freely and will affect their revenue. The forces of competitive rivalry have reduced the profit margins for supermarkets and suppliers Bargaining Power of Buyers Porter has mentioned that more and more products have become too similar or unchanged, thus the lower switching cost and more power is yielded to buyers.
To meet customers’ needs, Cold Storage ensures that they offer low prices, more variety of choices and in store promotions in order to maintain control and also to retain their large customer base. Recently, the style of shopping by customers has changed significantly and we can see them choosing to do their shopping in large supermarkets, and as such, Cold Storage also adopted selling non food items, to cater to the customers’ needs. Due to western influences, we can now find items and commodities such as tea, coffee etc in large supermarket chains like the Cold